US restriction on chipmakers deals critical blow to Huawei

HONG KONG (AP) – The latest United States (US) sanctions on Huawei threaten to devastate China’s first global tech competitor, escalating a feud with Beijing that could disrupt technology industries worldwide.

Huawei Technologies Ltd. is one of the world’s biggest producers of smartphones and network equipment, but that business is in jeopardy after Washington announced restrictions on use of American technology by foreign companies that produce its processor chips.

The conflict is politically fraught because Huawei is more than just China’s most successful private company. It is a national champion among industries the ruling Communist Party is pushing to develop in hopes of transforming China into a global competitor in profitable technologies.

Huawei has few alternatives if Washington refuses to allow its suppliers of processor chips to use American technology. The company has developed some of its own chips but the chipmakers that it contracts to manufacture them use American equipment.

“Every electronics system that Huawei produces could be negatively impacted,” said Jim Handy, semiconductor analyst for Objective Analysis, in an email.

Residents walk past a Huawei retail store in Beijing. PHOTO: AFP

“Most China-based alternatives haven’t yet been established.

There are few options Huawei can turn to for high-end chipsets as China’s largest semiconductor manufacturer, SMIC, is currently only able to produce chips that are two generations behind TSMC’s.

“Huawei had already begun to shift some production from TSMC to SMIC, although SMIC cannot yet produce Huawei’s latest Kirin 980 chipset,” said Neil Thomas, a research associate at US think tank Paulson Institute. “But SMIC can probably manufacture earlier-generation Huawei chipsets.”

Friction over Huawei has come amid a much wider deterioration of relations between Washington and Beijing. Most recently, questions over the origin of the coronavirus that has killed more than 300,000 people worldwide have amped up antagonisms, raising worries that a truce in a trade war between the two countries might fall apart.

To build up its homegrown semiconductor industry, China has invested tens of billions into a national chip fund and has given local semiconductor and software development firms tax breaks. But China’s efforts will not come to fruition immediately, as catching up could take years, analysts said.

China’s Commerce Ministry said yesterday it would “take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises.” It accused the US of abusing state power and violating market principles with the new measures.

In March, Huawei’s rotating chairman Eric Xu said more US moves to increase pressure on the company might trigger retaliation by Beijing that could damage its worldwide industry. Xu said 2020 will be its “most difficult year” as Huawei struggles with previously-imposed sanctions and the coronavirus pandemic.